A STUDY ON FINANCIAL ANALYSIS OFEVEREST BANK Ltd.

Butwal

Submitted By:Anuradha Sharma

Oxford CollegeT.U. Reg. No: 7-2-559-5-2009

Exam Roll. No:

Submitted to:Office of the Dean

Faculty of ManagementTribhuvan University

In partial fulfillment of the requirement for the degree ofBachelor of Business studies

ButwalBhadra, 2069

RECOMMENDATION

This is to certify that the field work assignment report

Submited ByAnuradha Sharma

T.U. Reg No:Exam Roll No:

EntitledA STUDY ON FINANCIAL ANALYSIS OF EVEREST BANK

LIMITED, BUTWAL

has been prepared as approved by this department in the prescribedformat

of faculty of management. This project work assignment report isforwarded

for examination.

…………………………… …………………………… ………………………… Mr. Krishna Adhikari Mr. Bhesraj Banjade Mr. Pashupati Adhikari (Supervisor) (Department head (Co-ordinator)

ACKNOWLEDGEMENT

The project report entitled “Financial analysis of Everest Bank Limited”is presentation for the partial fulfillment of requirement of degree ofBachelor of business studies (BBS) of Tribhuwan University, under thesubject Banking and Insurance.

This report has been prepared with outstanding suggestions, kindsupports, guidance and inspiration from various personalities. I expressmy deep appreciation to Mr. Krishna Adhikari (supervisor), Mr. BhesrajBanjade (department head), Mr. Pashupati Adhikari (Co-ordinator).

I would like to thanks my respected all teachers who had takenorientation class and generated ideas for us.

I must express my gratitude to Mr. Bishnu Prasad Gyawali (branchmanager) and entire staff of Everest Bank Limited, for providingrequisite statistical data for this report.

Lastly, I would like to appreciation to my family, friends who supportand encourage me while preparing this report.

Anuradha Sharma

BBS 3rdyears

Oxford College, Butwal

TABLE OF CONTENT

RecommendationAcknowledgementiTable of ContentsiiList of TablesiiiList of FiguresivList of Abbreviationv

CHAPTER-1 INTRODUCTIONPage No.1.1 Back ground of the study11.2 Significance of the study31.3 Literature Review31.4 Purpose of the study41.5 Fieldwork Procedure41.6 Limitation of the study5

CHAPTER 2: DATA PRESENTATION AND ANALYSIS6-172.1 Data presentation and analysis62.2 Major findings of study17

CHAPTER: SUMMARY, CONCLUSION AND RECOMMENDATION18-2O3.1 Summary183.2 Conclusion193.3 Recommendation19Time allotment BibliographyProposal

LIST OF TABLES AND FIGURES

List of TablePage No.

Table no. 2.1 Income statement of Everest Bank Ltd.6Table no. 2.2 Balance sheet of Everest Bank Ltd.7Table no. 2.3 Liquidity Ratio8Table no. 2.4 Asset Utilization Ratio9Table no. 2.5 Net Interest margin 10Table no. 2.6 Profit margin11

Table no. 2.7 Return on Assets12

List of FigurePage No.

Figure no. 2.1 Trend line of Ratios 9Figure no 2.2 Pie Chart of Profitability Ratios10Figure no 2.3 Capital Adequacy Ratios11

LIST OF ABBREVIATION

% Percentage EBL Everest Bank Limited

& AndBBS Bachelor of BusinessStudiesi.e. That isReg. no Registration NumberTU Tribhuvan UniversityFig FigureTATOR Total Asset Turnover RatioROE Return on Asset

CHAPTER-1INTRODUCTION

1.1 Background of the Fieldwork Project:

Financial analysis is the process of analyzing the various item offinancial statement of a firm to ensure its comparative strength andweakness.

Financial management has undergone through various change duringthe past century. Finance was studies as a part of economics before butin the early 19th century it developed as separate field to study withthe development of the industry location in 20th century. Most of theEuropean countries were oriented towards industrialization.

Financial management is the acquisition, management and financing ofresources for prices in external economic market. It is not only concernwith collection of capital but also with proper utilization of thosecapitals into productive areas.

Financial management is the source of income which is required toanalyze the performance of company such as it represents a record ofhistorical and financial performance and development over the year. Itis prepared by the cooperation at the end of a period. The statementsare prepared by the organization engaged in profit earning activities toreveal their position. A careful analysis of financial statement enablesthe managers and others to understand relative strength andweakness of the firm in relation to various aspects of firm’s financialperformance. So this statement provides a fair comprehensive positionand its performance during a particular period.

An analysis of financial position is necessary to serve the purpose ofinterested group looser in the society. The analysis provides differentusers such as investors, government, management. This analysisprovides different information about profitability of the company. Suchas returns of investment net profit margin, return of shareholdersequity etc. the strength weakness of the firm can be analyzed, so thatthey can make decision from their own point of view.

There are many financial institutions which are working asintermediaries. They have made financial activity easy. Present studyfocus on the financial analysis of Everest Bank Limited, for the year2008/09 to 2010/11.

Brief Profile of EBL

Everest Bank Limited (EBL) started its operations in 1994 with a view &objective of extending professionalized & efficient banking to varioussegments of the society. The bank is providing customer friendlyservices through its Branch Network. All it’s the branches areconnected through Anywhere Branch Banking System (ABBS) whichenables customers for operational transactions from any branches. Thebank has 45 branches, 55 ATM counters & 21 Revenue CollectionCounters across the country making it a very efficient and accessiblebank for its customers, anytime anywhere.

With an aim to help Nepalese citizens working abroad, the bank hasentered into arrangements with banks and finance companies indifferent countries like UAE, Kuwait, Bahrain, Qatar, Saudi Arabia,Malyasia, Singapore and U.K.

Bank has set up its representative offices at New Delhi (India) tosupport Nepalese citizen remitting money and advising banking relatedservices.

Catering to more than 4 lacs customer today, the bank has been one ofthe leading banks of the country & has been catering its service tovarious segments of the society since then. With clients from all walksof life, the bank has helped develop nation corporately, agriculturally &Industrially.

Joint Venture Partner

Punjab National Bank (PNB) is its joint venture partner holding 20%equity in the bank is the largest nationalized bank in India with itspresence virtually in all the important centers at India, PNB offers awide variety of banking services which include corporate bond andpersonal banking, industrial finance, agricultural finance, financing oftrade and international banking. For its excellence in banking services,it was recently awarded the “Best Bank Award 2011” amongst allbanks in India by the leading magazine, Business India.

Awards

The bank has been conferred with “Bank of the year 2006, Nepal” bythe Banker, a publication of financial times, London.

The bank was bestowed with the “NICCI Excellence award” by NepalIndia chamber of commerce for its spectacular performance underfinance sector.

Pioneering Achievements

Recognizing the value of offering a complete range of services, EBLhave pioneered in extending various customer friendly products suchas Home Loan, Education Loan, EBL flexi Loan, EBL property plus(Future Lease Rental), Home Equity Loan, Vechile Loan, Loan againstLife Insurance policy & Loan for professionals.EBL was one of the first bank to introduce anywhere Branch Banking(ABBS) in Nepal. It has introduced Mobile Vechile Banking system toserve the segment deprived of proper banking facilities through itsBirtamod Branch, which is the first its kind.EBL has introduced branchless banking system first time in Nepal tocover unbanked sector of Nepalese society.EBL is first bank that has launched e-ticketing system in Nepal. EBLcustomer can buy Yeti airlines ticket through internet.

1.1 Significance of the study :

To run the firm, financial position must be sound. The study providesinformation on financial position of the firm and different problems ofthe firm. The study must concerns with the following specific issues:1. What is the liquidity position does the firm hold?2. What is the relationship between EPS and MPS of the firm?3. What is the interest income and interest expenditure?4. What is the profitability position of the firm?

1.2 Literature Review:

According to Ross, Peter S, (2000), “Financial analysis refers tothe assessment of a business to deal with the planning, budgeting,monitoring, forecasting, and improving of all financial details within anorganization.”According to Brigham E.F., L.G. Gapenski, (1992), “financialanalysis means assessing the viability, stability and profitability of aproject. It also includes techniques used for determining the needs of abusiness.”

1.3 Purpose of the study:

The major purpose this project work study is to know the financialposition of the organization. It helps to get the information aboutvarious ratios in order to interpret the financial statement so that thestrength and weakness of the firm as well as its historical performanceand current financial condition can be determined. Some specificobjectives in our topic are listed as below:1. To assess capital adequacy.2. To find the income and expenditure.3. To identify the components of income and expenditure.4. To determine the profitability position.

1.4 Fieldwork procedure:

This project work study attempts to analyze the relationship amongdifferent figure in the financial statement for determining the financialperformance of the bank. The methods used for research purpose arehighlighted here. It includes the period covered, nature and sources ofdata collection procedure. The methods used in collection procedures.The methods used in collection of data are listed below.

1.4.1Sources of data

To analyze topic different data are gathered. The sources from whereinformation achieved are as follows:

A. Primary source andB. Secondary source.

A. Primary source

The data collected for the first time by the researcher himself from thefield of enquiry is called primary data. Primary data collection includesquestionnaire method. Direct interview method and direct observationmethod.

a) Questionnaire method:The related workers are interviewed by preparing the schedule ofquestion in the relevant topic.

b) Direct interview method:The direct interview is the raw information, it is collected byinterviewing the manager of the firms.

c) Direct observation methodTo acquire the practical knowledge the workers were being observed inthe spot.

B Secondary source The data which are initially collected by someone but obtained fromsome published sources are called secondary data. The data fromvarious sources are collected and proper data for purpose of the studyare arranged and analyzed. The sources of secondary data are:

a) Report provided by the management of the Everest Bank Limited.b) office records and magazines.c) Different related books journals, daily newspaper report publishedby different other medias.d) Different related Web sites.

1.4.2Tools used for analysisSince the study is concerned of financial aspect of the firms, someimportant tools like of the firms are:

a) Statistical tools Bar diagram Tables Trend line

b) Financial ratio Ratio analysis Fund flow statements

1.5 Limitation of the study:The study is not free from some limitation that the researcher hasexperienced during research work activities performance andgeneration drawn regarding the study of financial analysis of EverestBank Ltd. The limitation served as constraints to perform the assignedtask effectively and efficiently.

1) The study realize on secondary data collected from the annualreports of the bank.

2) The study period covers only 3 years period from 2008/09 to2010/011.

3) This study considers only one bank out of large number of bank.4) There are many factors that affect the financial analysis of

Everest Bank Ltd.5) Conclusion drawn by study is based on the reliability of statistical

and financial tools.

CHAPTER IIDATA PRESENTATION AND ANALYSIS

2.1 Presentation and Analysis of data

The data are the raw information which are meaningless until andunless analyzed and presented in systematic manner. In this chapter,data obtained from secondary sources are analyzed. To fulfill theobjective of study, the data are analyzed using various appropriatefinancial and statistical tools. It has been divided into two sections:-Data presentation and analysis.

2.1.1 Income statement and Balance sheet for the year 2008-2011

Income statement of Everest Bank ltd.

Rs.S.N.

Particulars Years

2008/09 2009/10 2010/111 Interest income 2,18,68,14,99

23,10,24,51,484

4,33,10,26,087

2 Interest expenses 1,01,28,74,353

1,57,27,90,306

2,53,58,75,552

A. Net interest income (1-2) 1,17,39,40,639

1,52,96,61,178

1,79,51,50,535

3 Commission and discount 20,20,94,446

20,81,23,481

20,34,68,424

4 Other operating income 10,64,03,694

14,23,11,427

14,80,61,979

5 Foreign exchange gain/loss (net) 6,25,26,819

4,78,79,967

4,62,59,065

B. Total operating income(A+3+4+5)

1,54,49,65,598

1,92,79,76,053

2,19,29,40,003

6 Staff expenses 18,69,19,870

22,63,64,009

29,31,30,567

7 Other operating expenses 29,20,10,522

35,25,11,231

3,81,12,054

C. Operating profit beforeprovision (B-6-7)

1,06,60,35,206

1,34,91,00,813

1,51,66,97,382

8 Provision for possible losses 9,30,84,880

7,70,10,625

9,82,99,482

D. Operating profit (C-8) 97,29,50,326

1,27,20,90,188

1,41,83,97,900

9 Non operating income/expenses(net)

50,05,256

1,23,38,972

14,33,385

10 Return back from provision forpossible loss

80,44,170

8,35,53,461

5,63,37,478

E. Profit from regularactivities (D+9+10)

98,59,99,752

1,36,79,82,621

1,47,61,68,763

11 Extraordinary income/expenses(net)

(55,49,170)

(6,11,92,476)

(1,20,51,522)

F. Profit before bonus andtaxes (E+11)

98,04,50,582

1,30,67,90,145

1,46,41,17,241

12 Provision for staff bonus 8,91,31,871

11,87,99,104

13,31,01,567

13 Provision for tax 25,25,85,954

35,62,25,409

39,97,12,046

G. Net profit/loss (F-12-13) 63,87,32,757

83,17,65,632

93,13,03,628

Table no. 2.1

Balance sheet of Everest Bank Ltd.Rs.

Capital and liabilities Years2008/09 2009/10 2010/11

1.

Share Capital 1,03,04,67,300

1,27,96,07,490

1,39,15,70,439

2.

Reserve and surplus 1,17,31,57,755

1,47,95,30,365

1,72,19,75,617

3.

Debenture and bond 30,00,00,000

30,00,00,000

30,00,00,000

4.

Borrowing 31,20,00,000

40,46,00,000

48,20,00,000

5.

Deposit liabilities 33,32,29,46,246

36,93,23,10,008

41,12,79,14,339

6.

Bills payable 14,86,55,592

14,55,14,679

4,97,16,572

7.

Purposed dividend 21,80,80,345

27,62,52,832

57,68,97,427

8.

Income tax liabilities 2,05,22,280

(11,36,458)

2,69,00414

9.

Other liabilities 39,10,19,136

56,60,81,795

55,92,37,454

Total liabilities 36,91,68,48,654

41,38,27,60,711

46,23,62,12,262

Assets Year

2008/09 2009/10 2010/111 Cash in hand

94,46,95,793 1,09,15,00,407

1,04,89,98,721

2 Balance with NRB 4,78,71,63,541

5,62,51,13,849

4,70,63,20,590

3 Balance with other Banks and Financial Institutions

43,25,11,829

1,10,22,00,747

36,75,43,641

4 Call and Short note Account - - -5 Investment

5,94,84,80,273

5,00,83,07,589

7,74,39,28,321

6 Loans, advances and bills purchased 23,88,46,73,616

27,55,63,56,032

31,05,76,91,462

7 Fixed assets 42,71,57,451

46,30,94,391

46,02,58,735

8 Non- Banking Assets - - -

9 Other Assets 49,21,66,151

53,61,87,696

85,14,70,792

Total Assets 36,91,68,48,654

41,38,27,60,711

46,23,62,12,262

Table no. 2.2

2.1.2 Analysis of Different Ratios2.1.2.1 Analysis of short term solvency position

This ratio measure the firm’s ability to satisfy its short termcommitments out of current or liquid assets to analyze the short termsolvency position, Liquidity ratio is used.

Liquidity ratio is the quantitative relationship between Liquid assets &total depositors. Here liquid assets are cash or cash worth assets likeBank & cash balance, Money at call and short notice, Balance in otherBanks etc.

On the other hand depositors are those obligations which must be paiddemand by the depositors.

Table no. 2.3 Liquidity Ratio

Fiscal year EBL

Liquid asset Deposit Liquidity Ratio2008/09 6,16,43,71,163 33,32,29,46,246 0.18502009/10 7,81,88,15,003 36,93,23,10,008 0.21172010/11 6,12,28,62,952 41,12,79,14,339 0.1489

Table no 2.3

Fig. no. 2.1Bar diagram showing liquidity ratio

In the above figure, years and values has been shown in X- axis and Y-axis respectively.Liquid assets to total deposit ratio is increasing at first and then afterdecreasing. The liquidity of 2008/09 is 0.1850, 2009/10 is 0.2117 &2010/2010 is 0.1489 increasing liquidity ratio is seems to be good butdecreasing ratio in last year of research period is not good for theorganization.

2.1.2.2 Asset Utilization Ratio

Asset utilization ratio measures the efficiency with which a bank usesits assets to generate profits. This ratio is also known as the Assetsturnover ratio or Assets management efficiency ratio. It is calculated asunder:

Asset utilization = Total operating revenues / Total assets

Table no. 2.4 Asset Utilization Ratio

Fiscal year Operatingrevenue

Total assets TATOR (%)

2008/09 1,54,49,65,598 36,91,68,48,654

4.1850

2009/10 1,92,79,76,053 41,38,27,60,711

4.6589

2010/11 2,19,29,40,003 46,23,62,12,262

4.7429

Table no.2.4

Fig. no. 2.2 Bar diagram showing asset utilization ratio

According to above table & bar diagram, the Asset Utilization of EBL isin increasing trend, it can be said that EBL has better effectiveutilization of its total investment in assets in term of generatingincome.

2.1.2.3 Profitability Ratios

Profitability ratios show the combined effects of liquidity, assetmanagement and debt management on operating results. It measuresthe earning of the company for a certain period. Five widely usedmeasure of profitability ratio are Net Profit Margin (NPM), Net InterestMargin (NIM), Earning spread, Return on assets (ROA), Return OnEquity (ROE) some of them are mentioned here,

A)Return on equity

Return on equity (ROE) is percentage of net profit (Income) on totalequity of the firm. It also shows how effectively the bank is utilizing itstotal equity worth for profit generation. The efficiency can be analyzedfrom the table below.

Return on equity (ROE) = Net Income/ Total equity capital

Table no. 2.5 Return on equity of EBL

Fiscal year Net Income Total equitycapital

ROE

2008/09 63,87,32,757 2,20,36,25,055 0.28992009/10 83,17,65,632 2,75,91,37,855 0.30152010/11 93,13,03,628 3,11,35,46,056 0.2991

Table no. 2.3

Fig no. 2.3 Trend line showing ROE of EBL

According to table and diagram, the return on equity is quitefluctuating and it is decreasing trend in the fiscal year 2009/10, Thisresult of ROE prove the way to deteriorate the enthusiasm of presentand potential investors of equity. Also it directly affects the value ofshares and goodwill of bank.

B)Net Interest Margin

The net interest margin is the difference between revenue generatedby interest bearing assets (loans and investments) and the interestcost of borrowed funds expressed as a percentage of either, averagetotal assets or, as some analysts prefer, average earning assets. TheNIM is calculated as follows;

Net Interest Margin = Net Interest Income/ Interest Earning Assets

Table no. 2.6 Net interest margin

Fiscal year Net InterestIncome

InterestEarningAssets

NIM (%)

2008/09 1,17,39,40,639 36,91,68,48,654

3.18

2009/10 1,52,96,61,178 41,38,27,60,711

3.69

2010/11 1,79,51,50,535 46,23,62,12,262

3.88

Table no. 2.6

Fig no. 2.4 Net interest Margin

From the above table & figure it can be said that the Net InterestMargin of EBL is in increasing trend. It refers that EBL is in profitabilityposition.

C)Profit Margin

Profit margin shows the relationship between net income and operatingincome. It shows proportion of net income with respect to its operatingincome. The profit margin is calculated as under;

Profit Margin = Net profit / operating income

Table no. 2.7 Profit margin

Fiscal year Net profit OperatingIncome

Net Profitmargin (%)

2008/09 63,87,32,757 1,54,49,65,598 41.34282009/10 83,17,65,632 1,92,79,76,053 43.14192010/11 93,13,03,628 2,19,29,40,003 42.4683

Table no. 2.7

Fig no. 2.5 trend line showing NPM of EBLFrom the table & figure presented above NPM of EBL is quitefluctuating at first increases & reaches up to 43.1419% then slightlydecreases & reaches up to 42.4683%. But in average Net Profit marginof EBL seems to be in sound position.

2.2 Major Finding of the Study

The presentation and analysis of data done in this chapter exacts manyresults and point regarding different aspects of the bank. However themost and major can pointed out as follows.

Table no 2.8EBL

Details 2008/09 2009/10 2010/11a)Short term solvency position- Liquidity ratio

0.1850 0.2117 0.1487

b)Asset utilization ratio-Total asset turnover ratio

4.1850 4.6589 4.7429

c)Profitability ratio-Return on equity-Net interest margin (%)-Profit margin (%)

0.28993.18

41.3428

0.30153.69

43.1499

0.29913.88

42.4683

CHAPTER IIISUMMARY, CONCLUSION AND RECOMMENDATIONS

3.1 SummaryThis report mainly concern with the principal objectives to comply withassessment required for the degree of BBs 3rd year of TribhuvanUiversity. EBL is one of the successful banks operating the territory ofNepal, providing fair banking service to its customers namelyremittance letter of credit, loan, locker, guarantees etc are major andone of indirect investment for the nation by EBL. So, this company isselected for the purpose of study, it started operation since 1994 withthe objectives to fuel the Nepalese economy and take it to hoverheight as well as to facilitate the nation economy to competitiveglobally.

This report is summed up in three chapters. It begins with briefbackground information of financial development of bank, statement ofthe problem, objectives of fieldwork projects & methodology followedtill the completion of the report writing. The sampled objectives offieldwork & methodology followed till the completion of the reportwriting. The sampled period of the study is only of three fiscal years.All the data which have been extracted from Income statement &Balance sheet of presented years, are of secondary nature. To meet thebasis purpose of the study different financial ratios are used as per thefive subsidiary objectives. The presentation and analysis part of thefield work project also consider by table.